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Blancco Tech Grp PLC (BLTG)

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Tuesday 25 September, 2018

Blancco Tech Grp PLC

Final Results

RNS Number : 7839B
Blancco Technology Group PLC
25 September 2018
 

25 September 2018

Blancco Technology Group plc

Final Results for the year ended 30 June 2018

Business continued to strengthen through the period

New Executive and senior management team in place; strategy developed to drive sustainable growth

Blancco Technology Group plc (AIM: BLTG, "Blancco", the "Company" or the "Group"), a leading global provider of mobile device diagnostics and secure data erasure solutions, today announces its final results for the year ended 30 June 2018.

FINANCIAL HIGHLIGHTS

·      Revenue increased by 2% to £27.5 million (2017: £26.9 million). On a constant currency1 basis revenue increased by 5% to £28.3 million.

·      Adjusted2 Operating Profit increased by 4% to £3.3 million (2017: £3.2 million), and 17% on a constant currency basis, to £3.7 million. Operating loss of £0.4 million (2017: operating loss of £2.7 million).

·      Adjusted2 EBITDA increased by 18% to £5.9 million (2017: £5.0 million).

·      Adjusted Operating Cash Flow4 of £4.1 million (2017: £3.2 million) with cash conversion3 of 123% (2017: 100%). IFRS Operating cash outflow from continuing operations is £0.4 million (2017: £0.2 million outflow).

·      Net debt at the year-end of £2.7 million (2017: net cash of £1.7 million) following payments relating to tax and M&A activity in prior years.

·      Adjusted continuing earnings per share5 of 4.66p (2017: 2.83p). Basic continuing loss per share is 0.54p (2017: 5.32p).

__________

•          1 Growth when current results are restated at the exchange rates prevailing in the prior year

•          Adjusted profit measures are stated after excluding expenses relating to share option schemes, acquisitions, exceptional restructuring costs and the amortisation of acquired intangible assets

•          Adjusted operating cash flow as a percentage of adjusted operating profit

•          Adjusted operating cash flow is operating cash flow excluding taxation, interest payments and receipts, acquisition costs and exceptional restructuring costs

•          5 Adjusted earnings are stated before amortisation of acquired intangible assets, amortisation of bank fees, exceptional restructuring costs, acquisition costs, share-based payments, unwinding of the discount factor on contingent consideration and adjustments to the estimates of contingent consideration 

 

OPERATIONAL HIGHLIGHTS

Corporate

·     Appointment of new executive team, supported by some key operational management appointments

Matt Jones appointed as Chief Executive in March 2018.

Adam Moloney joined as Chief Financial Officer in July 2018.

Additional important operational management appointments across sales, marketing and technical departments.

Mobile

·     Contracts valued at US$10 million+ with major US mobile carrier to March 2021 with over 6,000 retail stores to renew diagnostics contract and to use Diagnostic and Erasure product to process second hand mobile phones.

 

•      New contract valued at $1.0 million for in-store diagnostics with major South Korean mobile carrier with over 13 million subscribers / 1,100 retail stores Enterprise.

·     Renewed contract with major multinational technology company to use Blancco Data Centre Eraser solution to decommission servers in twenty of its global data centres.

·     Expanded relationship with one of world's largest multinational cloud-based software application firms to deploy Blancco Data Centre Eraser solution in six new data centres opened during FY18. 

·     New contract with major global retailer to use Blancco Drive Eraser on returned electronic purchases in locations across EMEA.

ITAD

·     Renewed contract with major multinational IT Asset Disposal company with over 1,000 enterprise customers to use Blancco Drive Eraser solution within their processing locations for additional multi-year term. 

Channel

·     New distribution agreements signed with Arrow Electronics (EMEA) and Ingram Micro (US, Canada & Australia) in the second half of the year.

·     Launched Erasure as a Service (EaaS) offering through new Managed Service Provider Partner programme in November 2017 leading to deals with 14 global and regional partners, including Fujitsu and Techchef. 

CURRENT TRADING

·     Strategic focus going into new year on large scale opportunities in mobile, data centre and enterprise.

·     Board encouraged by a strong start to the new financial year with invoiced revenue in the first two months ahead of comparative period last year.

·     £13.0 million banking facility with HSBC extended by twelve months to October 2020.

·     Appointed Anders Klemmer in new role as VP of Business Development in September 2018.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 ("MAR"). Upon the publication of this announcement, this inside information is now considered to be in the public domain.  For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of Blancco by Adam Moloney, Chief Financial Officer.

There will be a presentation for analysts held at 12:30hrs today at the offices of Tulchan Communications, 85 Fleet Street, EC4 1AE.  Please contact [email protected] if you would like to attend.

Matt Jones, Chief Executive said:

"I am pleased to be able to report on the continuing progress made by Blancco in the year ending 30 June 2018.

The interim results released in March referenced the steps taken by the Board and management team in the first half of the year to improve the financial performance of the business. These steps have resulted in a significant increase in the profitability of the business in the second half of the year and this forms the base for long term revenue growth following some targeted investment in the current period. Throughout this period of important and necessary transition, we also continued to provide outstanding service and support to our customers.  We have established trusted, long term relationships with some of the largest and most demanding companies in the world, and they will play an important part of our success in the years ahead

I joined the Group as CEO in March 2018 and it is clear I have joined a business with exceptional technology, market position, customer relationships, brand and people. I have spent the first months in the role reviewing the strengths of the business and the opportunities that are open to it. I look forward to working with the first class team that is in place at Blancco to deliver on the potential that resides within the organisation."

 

Enquiries:

Blancco Technology Group plc

Via Tulchan Communications

Matt Jones, Chief Executive Officer

Adam Moloney, Chief Financial Officer



 

Peel Hunt (Nominated Advisor & Broker)                                        

 

+44 (0) 20 7418 8900

Edward Knight / Nick Prowting



 

Panmure Gordon (UK) Limited (Joint Broker)                                                                           

 

+44 (0) 20 7886 2500

Dominic Morley, Corporate Finance

Charles Leigh Pemberton, Corporate Broking



 

Tulchan Communications                                                                           

 

+44 (0) 207 353 4200

James Macey White / Matt Low / Amber Ahluwalia

 



 

Chairman's Statement

Summary

Following a turbulent period for the Group, I am delighted to report on the steady progress made over the past twelve months. I would firstly like to thank Simon Herrick for his hard work and diligence since joining Blancco as Interim CFO in March 2017. Simon stepped up to take on the role of Interim CEO as well as CFO in September 2017.  He then oversaw a restructuring of the business to reset the cost base for the long term benefit of the company which led to substantial growth in the profitability in the second half of the year.  This was part of a process to build a strong, accountable and responsible culture right across the business. Simon continued to support the business throughout this transitional period.

In March 2018 we were delighted to announce the appointment of Matt Jones as CEO to the Group. Matt is a recognised leader with a successful track record of developing and overseeing the execution of growth strategies for companies in security, storage and communications. Matt has spent the first six months of his tenure reviewing the business and has now presented a strategic growth plan that is fully supported by the Board.

In July 2018, Matt was joined by Adam Moloney as an Executive Director who was appointed as CFO. Having served as CFO for 13 years for AIM listed payment security company, Eckoh plc, Adam has a track record of delivering shareholder value for companies operating in the cybersecurity space.  Both of these key executive appointments have been supplemented by important operational management hires.  I believe we now have the right executives to take Blancco forward and the Board is looking forward to working with the new team.

Dividend

The growth plans for the business are such that we anticipate continued investment into the business that will require cash resources to be redeployed into opportunities for future growth. As such, the Board has decided that it would not be appropriate to pay dividends to shareholders for the time being.

Outlook

Over the course of the last twelve months we have overseen a transformation of the senior management team.  We now have a group of experienced individuals who have an established track record of having delivered significant growth for technology companies. The team has quickly identified that the key organisations to target are those in the mobile, data centre and enterprise markets. We are excited about the prospects ahead and remain confident in the outlook. We look forward to reporting on our progress in the months and years ahead.

Rob Woodward

Non-Executive Chairman



 

Chief Executive's Statement

Overview of trading performance

The significant changes to the management team and Board over the past twelve months led to a period of stabilisation for the business and results which show a modest growth in revenues compared to the previous year. The restructuring of the business that took place towards the end of calendar year 2017 led to a significant reduction in the cost base and a period of increased profitability in the second half of the year. There has also been very little change in the geographical or product splits in our revenue. It is to the credit of the Blancco team that revenues have been maintained and profits have increased over the last financial year. We now look forward to how we can invest to accelerate the revenue growth in the business and where the focus of our efforts should be.

Market opportunity

Blancco has developed a strong reputation in the data erasure field over the course of the past twenty years. The regulatory environment has caught up with Blancco's proposition with regulations such as the EU General Data Protection Requirements (GDPR) and Payment Card Industry Data Security Standards (PCI DSS) all requiring that data is looked after carefully and is not held for a longer period than is required. Organisations need to find ways of securely erasing data and can no longer operate under the misconception that simply deleting data is sufficient for it to be disposed of securely.

The majority of data that is deleted can be recovered and is only safely erased when using solutions such as those provided by Blancco. Blancco are now very well placed to grow aggressively in this regulatory environment and to establish itself as the clear market leader in a rapidly growing space.

Business overview 

Mobile Retail

The customers here are companies who are selling mobile handsets from retail stores. These companies incur significant cost from their customers who believe that their handset is faulty. Blancco has developed tools to allow sales assistants to run a range of diagnostic tests in stores thus avoiding the expense our customers usually incur in sending devices for testing.

Between February and November 2017, tests were run on 1.3 million mobile devices in the stores of our largest client of which 0.7 million were found to have no fault. The cost of sending the device off site for testing would be in the region of US$80 per device. As a result, the testing of the device in the store saved Blancco's customer approximately US$56 million of cost during this ten month period.

Mobile Resellers

The market for reselling used mobile handsets is growing extremely quickly with the number of handsets to be traded in or resold expected to be grow from 165 million to 290 million from 2017 to 2022. Going forward the value of handsets resold is expected to increase by 22% CAGR from US$20 billion in 2017 to US$53 million in 2022 but it is critical that all handsets being resold have data from previous users erased prior to resale. We have seen a steep increase in recent years of the value of individual handsets, leading to a greater resale value and an increased inclination to recycle those handsets. There is competition in this market but competitors do not tend to offer a full and secure erasure of the handset. Many competitors do not have a diagnostic solution but nobody can process a similar number of simultaneous erasures thus increasing the time and cost of preparing handsets for resale.

Enterprise

Organisations which are processing large amounts of data will often have a large quantity of high value equipment housed within a data centre. These data centres will usually have a regular cycle of investment in order to keep the equipment up to date. At the point where older equipment is no longer required, regulations require that data held on the equipment is securely erased and certified. Blancco has been selling software into the enterprises for several years, supplying the most widely deployed, fully certified software product in the market.

IT Asset Disposition (ITAD)

ITAD services are provided on items of IT hardware where equipment is either being reused, resold or disposed of. Examples would be the erasure of data on a PC, laptop, mobile handset or server. Blancco can provide customers with the solution from several media such as from the cloud, on a CD, or a USB stick. Blancco has been a market leader in ITAD for a long period of time and has a longer list of accreditations and certifications than any of its competitors.

Strategic Review Conclusions

While there are a number of opportunities open to Blancco, the primary outcome of the strategic review is to focus on three key markets in which Blancco already has a strong position - Mobile, Enterprise and ITAD.

Mobile

The mobile market is large and experiencing rapid growth. There are a number of small competitors but no clear market leader at this stage. Blancco intends to create a leadership position in the Mobile Asset Lifestyle space by providing a broad range of software based processing solutions that reach across the three major market segments of Carriers, Retail and Third Party Logistics. None of the competitors in the space offer a complete proposition across all three of these segments. Blancco will be adding resource to its R&D division to complete the proposition enabling it to establish itself as the market leader.

Data Centre / Enterprise

Unlike the Mobile and ITAD markets, Data Centre / Enterprise customers will be managing data rather than physical assets in most instances. The market is very large with high growth and little competition. In order to access these customers, Blancco will seek to develop relationships with OEM and Channel partners in order to become part of a larger proposition. Initial focus will be on the Data Centre market but it is anticipated that this will move to an Enterprise approach as the market matures. R&D resources will be supplemented for the Blancco proposition in order to be able to provide a best in class solution for these high quality customers.

IT Asset Disposition (ITAD)

Blancco is currently the clear leader in the ITAD market and it remains a key focus for Blancco to retain that position. This is the smallest of the three markets. There is a significant amount of overlap between the technology supporting the Mobile and Data Centre / Enterprise markets and the ITAD proposition will benefit from the increases in the R&D resource being implemented in those areas. We will continue to ensure that the ITAD offering remains the best in the market and that our market leading position is maintained.

Financial Review

The 2017 results have been restated to remove the performance of the disposed Mexican subsidiary to discontinued operations, and the balance sheet has been restated following a revaluation of a number of legacy acquisition accounting entries which had not been revalued for movements in foreign exchange rates. The deferred tax liability has also been represented as gross deferred tax asset and liabilities in order to present these on a gross rather than net basis. The resulting impact of the latter two items is that the balance sheet for 30 June 2016 has been adjusted solely for these items and re-presented. This adjustment has had no impact to previously reported adjusted operating profit or cash flows. The full disclosure of the impact of these restatements is in note 8.

Revenue

Blancco's revenue from continuing operations was £27.5 million (2017: £26.9 million, growth of 2%, 5% in constant currency terms). Blancco has two main pricing models, volume-based pricing, where clients purchase a fixed number of erasure licences and subscription pricing, where clients purchase a time-bound right of use of Blancco products. From a revenue perspective, absent of any other significant deliverables, volume-based sales are recognised at the point of invoice (being the point at which the software is delivered), whereas subscription sales are recognised monthly over the term of the subscription (even if the subscription is invoiced as an up-front payment).

While the overall group revenue figures showed very little growth overall, we did see some good growth for our mobile erasure solutions where invoiced sales increased by 10% from £6.3 million to £6.9 million. This further validates our belief that the mobile market is the sector with the most significant potential for growth.

Profitability Measures

Adjusted operating profit was £3.3 million (2017: £3.2 million), growth of 4%, 17% in constant currency terms. Operating loss was £0.4 million (2017: £2.7 million operating loss). The profitability growth in the prior year was largely driven by an aggressive cost reduction programme implemented in November that saw Adjusted Operating Profits of £2.5 million in the second half of the year compared to £0.8 million in the first half of the year (H1 2017: £2.5 million; H2 2017: £0.7 million). While these measures led to a period of strong adjusted operating profits during a period of little revenue growth, the cost control measures led to a reduction in sales and marketing efforts as well as product development initiatives. Going forward the investments planned to accelerate the long term revenue growth of the business will result in the cost base increasing in the short term but eventually leading to increased profitability growth in the medium term.

Adjusted EBITDA for the period grew by 18% from £5.0 million to £5.9 million.

 

 

Year ended

30 June 2018

Year ended

30 June 2017

 

 

£'million

£'million

Operating loss

 

(0.4)

(2.7)

Acquisition costs

 

-

1.6

Exceptional restructuring costs

 

1.4

1.0

Amortisation of acquired intangible assets

 

2.6

2.6

Share based payments (credit) / charge

 

(0.3)

0.7

Adjusted operating profit

 

3.3

3.2

Depreciation and amortisation

 

2.6

1.8

Adjusted EBITDA

 

5.9

5.0

 

The Group restructured the business and management team in the first half of the year which resulted in exceptional costs of £0.8 million. Additionally, the Group incurred legal costs associated with matters arising from the review of contracts for the years ended 30 June 2016 and 2017.

The total exceptional costs incurred in the period were £1.4 million (2017: £1.0 million) with the exceptional costs in the prior year period arising from restructuring and the legal fees associated with the defence of the Group's patents following claims from a competitor.

Acquisition costs incurred in the period were £nil (2017: £1.6 million) due to the fact that there was no acquisition activity initiated or completed in the current period for the continuing business. In the prior year, the Group's strategy focused on several acquisitions of non-controlling interests including France, Australia, South East Asia and Canada.

Cash and working capital

The Group closed the year with net debt of £2.7 million (2017: £1.7 million net cash). There has been a reduction in net cash since June 2017 with the adjusted operating cash inflow offset by the following items:

·     £1.9 million of tax paid in the year, of which £1.5 million paid in the first half of the year related to prior periods

·     Acquisition payments in the period of £1.1 million relating to the Xcaliber, Sweden and France minority interest earn outs

·     Restructuring of the management team, which incurred exceptional payments of £0.6 million, further exceptional costs incurred in the first half of the year resulting in payments of £0.6 million and the settlement of unpaid exceptional costs from the prior year of £0.9 million.

 

The majority of the above impacts on cash related to legacy commitments or one off restructuring activity, and took place in the first half of the year. During the second half of the year the Group generated £0.7 million of cash, reducing net debt from £3.4 million at 31 December 2017 to £2.7 million at the end of the year.

Adjusted Operating Cash Flow was £4.1 million (2017: £3.2 million) with adjusted cash conversion of 123% (2017: 100%) showing continued strong levels of cash generation from our underlying core operations.

Capital expenditure and R&D qualifying for capitalisation was £2.7 million (2017: £3.4 million). Of this capital expenditure, £2.2 million (2017: £2.6 million) was incurred in the ongoing development of the product range. The remaining expenditure relates to purchase of property, plant and equipment and investment in the continued development of the Group's operating systems.

Dividend paid of £0.2 million represents the dividend paid to minority shareholders of the Group's Japanese subsidiary. In the prior year, the dividends paid of £1.4 million represented both the dividend paid to shareholders of the group (£1.1 million) and dividends paid to minority shareholders of the Group's Japanese and Australian subsidiaries (£0.3 million).

Other movements of £0.3 million inflow (2017: £0.1 million outflow) include changes in the value of overseas cash held on deposit when translated back into Sterling at the exchange rates prevailing at the end of the period.

Year end net debt of £2.7 million (2017: net cash of £1.7 million) comprised long term borrowings of £8.9 million (2017: £9.9 million) and cash and cash equivalents, inclusive of overdraft balances, of £6.2 million (2017: £11.6 million) 



 

Summary & Outlook

Following the completion of the restructuring activities of the past year, the implementation of robust controls and procedures together with the introduction of a new management team, Blancco is extremely well placed to capitalise on the regulatory drivers that will lead to growth in the years ahead.

The approach going forward is to focus on the Mobile, Data Centre / Enterprise and ITAD markets where Blancco already has a strong proposition. R&D resource is being added to enhance the proposition in the Mobile and Data Centre / Enterprise markets in particular where the markets are the largest and growing at a rapid rate.

Trading in the early months of the year has been very encouraging with invoiced sales ahead of the comparative period for last year and the net debt has reduced further with cash being generated from these increased sales.



 

Consolidated income statement

for the year ended 30 June 2018

 



Year ended 30 June 2018


*Year ended 30 June 2017



£'000


£'000






Continuing operations





Revenue


27,487


26,913

Cost of sales


(1,084)


(1,097)

Gross profit


26,403


25,816

Administrative expenses


(26,786)


(28,513)

Loss from operating activities


(383)


(2,697)

Acquisition costs

3

2


1,558

Exceptional restructuring costs

4

1,366


1,024

Amortisation of acquired intangible assets

6

2,597


2,635

Share based payments income / (charge)


(255)


675

Adjusted Administrative expenses


(23,076)


(22,621)

Adjusted Profit from operating activities


3,327


3,195






Finance expense


(730)


(928)

Finance Income


781


1,688

Loss before taxation


(332)


(1,937)

Taxation


70


(632)

Loss for the year


(262)


(2,569)






Discontinued operations





Post tax results from discontinued operations


696


(1,856)

Profit / (loss) for the year


434


(4,425)






Attributable to:





Equity holders of the Company


338


(4,979)

Non-controlling interest


96


554

Profit / (loss) for the year


434


(4,425)

*restated - see note 8





 

Earnings per share





Continuing operations:





Basic

5

(0.54p)


(5.32p)

Diluted

5

(0.54p)


(5.32p)

Discontinued operations:





Basic

5

1.09p


(3.46p)

Diluted

5

1.09p


(3.46p)

Total Group:





Basic

5

0.55p


(8.78p)

Diluted

5

0.55p


(8.78p)











 

 



 

Consolidated statement of comprehensive income

for the year ended 30 June 2018

 



Year ended 30 June 2018


*Year ended 30 June 2017



£'000


£'000






Profit/(loss) for the year


434


(4,425)

Other comprehensive income - amounts that may be reclassified to profit of loss in the future:





Recycling of translation reserve on disposal of discontinued operation


(198)


-

Exchange differences arising on translation of foreign entities


53


2,608

Total comprehensive profit/(loss) for the year


289


(1,817)






Attributable to:





Equity holders of the Company


201


(2,392)

Non-controlling interests


88


575

Total comprehensive profit/(loss) for the year


289


(1,817)

*restated - see note 8





 



Consolidated statement of financial position

as at 30 June 2018



30 June 2018

*30 June 2017

*30 June 2016



£'000

£'000

£'000


Notes




Assets





Non-current assets





Goodwill


46,348

46,359

44,282

Other Intangible assets

6

22,313

24,621

24,484

Property, plant and equipment


371

446

430

Deferred tax assets


670

888

1,917



69,702

72,314

71,113






Current assets





Inventories


99

142

116

Trade and other receivables


7,079

8,438

6,551

Current tax asset


101

-

-

Cash


6,220

11,648

4,769

Assets held for sale


-

-

4,804



13,499

20,228

16,240






Total assets


83,201

92,542

87,353






Liabilities





Current liabilities





Trade and other payables


(10,064)

(14,298)

(13,791)

Contingent consideration


(2,044)

(1,726)

(2,213)

Current tax liability


-

(1,450)

(2,264)

Provisions


(63)

(386)

(1,569)

Liabilities held for sale


-

-

(3,038)



(12,171)

(17,860)

(22,875)






Non-current liabilities





Borrowings


(8,930)

(9,916)

(3,727)

Other payables


(1,752)

(1,681)

(954)

Contingent consideration


(156)

(2,418)

(3,196)

Deferred tax liability


(3,171)

(3,803)

(3,879)

Provisions


(1,981)

(2,035)

(3,782)



(15,990)

(19,853)

(15,538)

Total Liabilities


(28,161)

(37,713)

(38,413)






Net Assets


55,040

54,829

48,940






Shareholders' equity





Called up share capital


1,280

1,280

1,164

Share Premium


9,152

9,152

-

Merger Reserve


4,034

4,034

4,034

Capital Redemption Reserve


417

417

417

Translation reserve


3,463

3,600

1,195

Retained earnings


35,757

35,304

41,609

Total equity attributable to equity holders of the Company


54,103

53,787

48,419

Non-controlling interest reserve


937

1,042

521

Total equity


55,040

54,829

48,940

*restated - see note 8







Consolidated statement of changes in equity

as at 30 June 2018

 


Called up share Capital

Share Premium

Merger reserve

Translation reserve

Retained earnings

Non-controlling interest reserve

Capital redemption reserve

Total shareholders equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000










Balance at 1 July 2016*

1,164

-

4,034

1,195

41,609

521

417

48,940

Comprehensive income:









(Loss) / profit for the year

-

-

-

-

(4,979)

554

-

(4,425)

Other comprehensive income:









Exchange differences arising on translation of foreign entities

-

-

-

2,587

-

21

-

2,608

Transactions with owners recorded directly in equity:









Recognition of share-based payments

-

-

-

-

343

-

-

343

Dividends paid

-

-

-

-

(1,139)

(278)

-

(1,417)

Share placing

116

9,152

-

-

-

-

-

9,268

Share options exercised

-

-

-

-

407

-

-

407

Vesting of options to sell shares in subsidiary

-

-

-

-

165

-

-

165

Acquisition of non-controlling interest without a change in control

-

-

-

-

(1,041)

-

-

(1,041)

Reserves transfer on disposal of subsidiary

-

-

-

(182)

-

-

-

(182)

Issue of shares to non-controlling interest

-

-

-

-

-

163

-

163

Reserves transfer on acquisition of non-controlling interest

-

-

-

-

(61)

61

-

-

Balance at 30 June 2017*

1,280

9,152

4,034

3,600

35,304

1,042

417

54,829










Comprehensive income:









Profit for the year

-

-

-

-

338

96

-

434

Other comprehensive loss:









Recycling of translation reserve on disposal of discontinued operation

-

-

-

(139)

-

(59)

-

(198)

Exchange differences arising on translation of foreign entities

-

-

-

2

-

51

-

53

Transactions with owners recorded directly in equity:









Dividends paid

-

-

-

-

-

(240)

-

(240)

Disposal of non-controlling interest

-

-

-

-

-

47

-

47

Share based payment charge

-

-

-

-

115

-

-

115

Balance at 30 June 2018

1,280

9,152

4,034

3,463

35,757

937

417

55,040

*restated - see note 8









 



 

Consolidated statement of cash flows

for the year ended 30 June 2018

 


 

 

30 June 2018

*30 June 2017



£'000

£'000





Profit / (loss) for the period


434

(4,425)

Adjustments for:




Results of discontinued operations


(696)

1,856

Net finance income


(51)

(760)

Tax (income) / expense


(70)

632

Depreciation on property, plant and equipment


202

191

Amortisation of intangible assets


2,332

1,579

Amortisation of acquired intangible assets


2,597

2,635

Share-based payments (income) / expense


(255)

675

Operating cash flow before movement in working capital


4,493

2,383





Acquisition costs


2

1,558

Exceptional restructuring costs


1,366

1,024

Adjusted EBITDA


5,861

4,965





Decrease / (increase) in inventories


43

(26)

Decrease / (increase) in receivables


696

(941)

(Decrease) / increase in payables and accruals


(3,346)

131

Decrease in provisions


(163)

(732)

Cash generated from continuing operations


1,723

815





Acquisition costs


322

1,477

Exceptional restructuring costs


2,044

890

Adjusted Operating Cash Flow


4,089

3,182

Interest received


14

2

Interest paid


(291)

(321)

Tax paid


(1,854)

(731)

Net cash outflow from operating activities - continuing operations


(408)

(235)

Net cash outflow from operating activities - discontinued operations


(23)

(2,551)

Net cash outflow from operating activities - continuing and discontinued operations


(431)

(2,786)





Cash flows from investing activities




Purchase of property, plant and equipment


(162)

(243)

Purchase and development of intangible assets


(2,517)

(3,146)

Acquisition of subsidiaries, net of cash acquired


(1,095)

(657)

Net cash used in investing activities - continuing operations


(3,774)

(4,046)

Net cash used in investing activities - discontinued operations


(132)

(67)

Net cash used in investing activities - continuing and discontinued operations


(3,906)

(4,113)







 

Cash flows from financing activities




Dividends paid


-

(1,139)

Dividends paid to non-controlling interests


(240)

(278)

(Repayment) / draw down of borrowings


(1,000)

6,174

Share placing net of fees


-

9,479

Payments made to acquire non-controlling interests


(110)

(462)

Proceeds from issue of shares to non-controlling interests


-

136

Net cash (used in) / from financing activities


(1,350)

13,910

Net cash used in financing activities - discontinued operations


-

-

Net cash (used in) / from financing activities - continuing and discontinued operations


(1,350)

13,910





Net (decrease) / increase in cash and cash equivalents


(5,687)

7,011

Other non-cash movements - exchange rate changes


259

(132)

Cash and cash equivalents at beginning of period


11,648

4,769

Cash and cash equivalents at end of period


6,220

11,648

Bank borrowings


(8,930)

(9,916)

Net cash


(2,710)

1,732

*restated - see note 8

 



 

NOTES TO THE ACCOUNTS

For the year ended 30 June 2018

1.    Basis of Preparation

The financial information does not constitute statutory accounts within the meaning of Sections 434 to 436 of the Companies Act 2006, but are derived from those accounts. Statutory accounts for the financial year ended 30 June 2017 have been filed with the Registrar of Companies and those for the financial year ended 30 June 2018 were approved by the Board of directors on 24 September 2018 and will be delivered in due course. The auditor has reported on those accounts, their report was unqualified and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006.   Whilst the financial information included in this announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU, this announcement does not itself contain sufficient information to comply with IFRS.

Going concern

 

The Group meets its day-to-day working capital requirements through cash reserves and a revolving credit facility which is in place until October 2020, following a 12 month extension agreed in September 2018.

 

The Group's forecasts and projections, taking account of possible changes in trading performance, show that it should be able to operate within the level of its current revolving credit facility.  The Board therefore has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. 

 

2.      Segmental Reporting

 

As outlined in the Group Financial Review, the Group's continuing operations consist of one segment covering the previous erasure and diagnostic product offerings. The Chief Operating decision maker of the business is the Chief Executive Officer, and in the prior year the Group reported results from its continuing operations in two distinct segments, erasure and diagnostics. In the current year, the business is viewed as one segment with reporting to management being completed on this basis.

Discontinued Operations

Discontinued revenues are comprised of the results of the Mexican legal entity that was disposed of in January 2018, and additionally, in the prior year revenues associated with the Digital Care Mobile Insurance business disposed of in September 2016.







Year ended 30 June 2018

Year ended 30 June 2017

Discontinued operations


£'000

£'000





Software revenue


185

770

Mobile Insurance revenue


-

1,740

Total revenue


185

2,510





Cost of sales


-

-

Gross profit


185

2,510

 





Administrative expenses and depreciation


40

(2,486)

Operating profit


225

24

Exceptional costs


43

938

Other exceptional income


(200)

(1,478)

Adjusted administrative expenses


(117)

(3,026)





Software adjusted operating profit


68

245

Mobile insurance adjusted operating profit


-

(761)





Finance income


8

-

Profit before tax


233

24





All of the exceptional costs incurred in the current year relate to the disposal of the Mexican entity within the Software segment (2017: disposal of the Mobile Insurance Business in the Mobile Insurance segment and acquisition of the minority interest of the Mexican entity in the Software segment).

The exceptional income incurred relates to a release of a provision from the previously disposed Mobile Insurance Business following indication from the purchaser that the liability has been extinguished (2017: release of provisions against disposed Repair Services Business where the period for claim elapsed).

 

3.            Acquisition costs

 



2018

2017



£'000

£'000

Acquisition costs and other M&A related costs


2

1,558

 

The acquisition costs are significantly lower than the prior period, as the prior year included acquisition costs incurred in the non-controlling interest buy-outs of Group companies in France, South East Asia and Australia that took place in the period.

A small level of deal costs are not included above as they relate to the disposal of the Mexican entity and are presented within discontinued operations. Deal costs of £0.7 million incurred in the prior year relate to the disposal of the Mobile Insurance business and the acquisition of the minority interest of the Mexican entity in the Software segment.

 

4.            Exceptional Restructuring costs



2018

2017



£'000

£'000

Restructuring


775

846

Legal costs


591

178



1,366

1,024

 

Exceptional restructuring costs related to costs associated with the restructure of the business during the first half of the year and legal costs associated with matters arising from the review of contracts for the years ended 30 June 2016 and 30 June 2017, which were detailed in a previous announcement released on 4 September 2017.

The costs in the previous year relate to integration of acquired businesses and the defence of a claim against one of the Group's patents.

Exceptional redundancy and restructuring costs related to discontinued operations were £nil in the year (2017: £0.2 million) with the exceptional restructuring costs in the prior year relating to the Mobile Insurance business, and they are presented within discontinued operations.

 

5.            Earnings per share (EPS)







Year ended 30 June 2018

Year ended 30 June 2017

Continuing operations




Basic earnings per share


(0.54 p)

(5.32 p)

Diluted earnings per share


(0.54 p)

(5.32 p)

Adjusted earnings per share


4.66 p

2.83 p

Diluted adjusted earnings per share


4.64 p

2.83 p

Discontinued operations




Basic earnings per share


1.09 p

(3.46 p)

Diluted earnings per share


1.09 p

(3.46 p)

Adjusted earnings per share


0.09 p

(1.67 p)

Diluted adjusted earnings per share


0.09 p

 (1.67 p)

Total Group




Basic earnings per share


0.55 p

(8.78 p)

Diluted earnings per share


0.55 p

(8.78 p)

Adjusted earnings per share


4.75 p

1.16 p

Diluted adjusted earnings per share


4.73 p

 1.16 p









Continuing operations


£'000

£'000

Loss for the period


(262)

(2,569)

Profit attributable to non-controlling interests


(75)

(448)

Loss attributable to equity holders of the Parent Company


(337)

 (3,017)









Reconciliation to adjusted profit:




Unwinding of contingent consideration


439

523

Revaluation of contingent consideration


(767)

(1,602)

Acquisition costs


2

1,558

Amortisation of acquired intangible assets


2,597

2,635

Exceptional restructuring costs


1,366

1,024

Exceptional bank charges


14

14

Share-based payments


(255)

 675

Tax impact of above adjustments


(183)

(205)

Adjusted profit for the year


2,876

1,605





 

The weighted average number of shares and reconciliation between basic and diluted measures is presented below:

 


 

 

Year ended

Year ended


 

 

30 June 2018

30 June 2017

Number of shares

 

 

'000s

'000s

Basic

 

 

61,714

56,668

Impact of dilutive share options

 

 

216

-

Diluted

 

 

61,930

56,668

 

 

6.            Intangible Assets

                                                          

 

Brand name

Intellectual property

Customer contracts

Development expenditure

Software licences

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Cost







At 1 July 2016 (restated)

 

3,337

14,539

8,330

3,456

1,044

30,706

Additions

-

-

-

2,564

582

3,146

Exchange movement

170

609

546

184

37

1,546

At 30 June 2017 (restated)

3,507

15,148

8,876

6,204

1,663

35,398

Additions

-

-

-

2,215

302

2,517

Disposals

-

-

-

-

(35)

(35)

Exchange movement

17

50

41

56

8

172

At 30 June 2018

3,524

15,198

8,917

8,475

1,938

38,052

 

 

 

 

 

 

 

Accumulated amortisation

 

 

 

 

 

At 1 July 2016 (restated)

 

716

2,803

1,873

693

137

6,222

Charge for the year

296

1,527

812

1,183

396

4,214

Exchange movement

35

157

114

24

11

341

At 30 June 2017 (restated)

1,047

4,487

2,799

1,900

544

10,777

Charge for the year

241

1,554

802

1,875

457

4,929

Disposal

-

-

-

-

(35)

(35)

Exchange movement

-

28

11

26

3

68

At 30 June 2018

1,288

6,069

3,612

3,801

969

15,739

 

Net book value at 30 June 2018

 

 

 

2,236

9,129

5,305

4,674

969

22,313

 







Net book value at 30 June 2017

 

2,460

10,661

6,077

4,304

1,119

24,621

Net book value at 30 June 2016

 

2,621

11,736

6,457

2,763

907

24,484

 







 

The Group's continuing operations capitalised internal development expenditure of £2.2 million (2017: £2.6 million), predominantly in the continued development of Blancco software and Xcaliber diagnostics. Amortisation of internally generated development expenditure for the Group's continuing operations is £1.9 million (2017: £1.2 million).

 

The amortisation is presented in the Income Statement within administrative expenses, with the amortisation associated with acquired intangibles not included within adjusted administrative expenses and therefore not recorded in adjusted operating profit.

 

7.            Post Balance Sheet Events

In July 2018, the Group announced that it had hired Adam Moloney as Chief Financial Officer. Adam replaced Simon Herrick who had held the role of interim Chief Financial Officer and additionally served as interim Chief Executive Officer from September 2017 to March 2018. Additionally, in July 2018, Adam Moloney was invited to participate in the Blancco Performance Share Plan and was granted a conditional award of 302,632 ordinary shares in the Group. These conditional awards will vest should the Group achieve certain Invoiced Sales and Adjusted Operating Cash Flow targets for the year ended 30 June 2021, in accordance with the rules of the Blancco Performance Share Plan.

On 13 September 2018, the Group extended its existing banking facility for 12 months under the same terms. The facility now expires on 31 October 2020 giving clarity over the Group's funding into the medium term, and allows the new management team to commence investments targeting the Group's strategic priorities.

 

8.            Prior Year Adjustment

A prior year adjustment has been made relating to the value of goodwill, acquired intangibles and provisions arising from acquisition accounting. In light of a review of the accounts for the year ended 30 June 2017 by the Financial Reporting Council, the Group concluded that the aforementioned assets and liabilities were those of the underlying overseas operations rather than of the UK Group, and therefore should be denominated in the same functional currency as the overseas operation. These had not been revalued due to foreign exchange movements since initial recognition. This meant that the carrying values of these respective assets were measured at the exchange rates on the relevant acquisition dates.

 

In addition, a restatement of the deferred tax assets and liabilities has been made in order to present these on a gross rather than net basis as balances relating to different tax jurisdictions should not be offset. A summary of the impact of the prior period on the consolidated income statement for the year ended 30 June 2017, as well as the consolidated balance sheet as at 30 June 2017 arising from the restatement is as follows:



 

Continuing Operations


As reported

Revaluation of Goodwill, Acquired Intangibles and Provisions

Reclassification of Mexico results to discontinued

Restated



£'000

£'000

£'000

£'000

Revenue


27,683

-

(770)

26,913

Adjusted operating profit


3,440

-

(245)

3,195

 



 


As reported

Revaluation of Goodwill, Acquired Intangibles and Provisions

Grossing up of deferred tax balances

Restated

Assets





Non-current assets





Goodwill

42,821

3,538

-

46,359

Other intangible assets

23,330

1,291

-

24,621

Property, plant and equipment

446

-

-

446

Deferred tax assets

-

-

888

888

Current Assets





Current assets

20,228

-

-

20,228

 

 





Current liabilities





Trade and other payables

(13,958)

(340)

-

 (14,298)

Other current liabilities

(3,562)

-

-

(3,562)


(17,520)

(340)

-

 (17,860)

Non-current liabilities





Deferred tax

(2,611)

(304)

(888)

(3,803)

Non-current liabilities

(16,050)

-

-

 (16,050)

 

 

An adjustment has also been made to the balance sheet as at 30 June 2016. A summary of the impact of the prior year adjustment on the consolidated balance sheet at this date is as follows:

 


As reported

Revaluation of Goodwill, Acquired Intangibles and Provisions

Grossing up of deferred tax balances

Restated

Assets





Non-current assets





Goodwill

42,821

1,461

-

44,282

Other intangible assets

24,071

413

-

24,484

Property, plant and equipment

430

-

-

430

Deferred tax assets

-


1,917

1,917

Current Assets





Current Assets

16,240

-

-

16,240

 

 





Current liabilities





Trade and other payables

(13,378)

(413)

-

(13,791)

Other current liabilities

(9,084)

-

-

(9,084)


(22,462)

(413)

-

(22,875)

Non-current liabilities





Deferred tax

(1,844)

(118)

(1,917)

(3,879)

Non-current liabilities

(11,659)

-

-

(11,659)

 

In addition, and following the FRC review, there has been a restatement of the consolidated cash flow statement to reclassify the cash flows payments made to acquire non-controlling interests and proceeds from issue of shares to non-controlling interests from a cash flows from investing activities to a cash flows from financing activities, since these activities do not result in a change of control. There has been no change to the values within each caption or on the overall cash flow for the prior year.

 

A summary of the impact on the consolidated cash flow statement for the year ended 30 June 2017 is as follows:

 



As reported

Reclassification of cash flows

Restated



£'000

£'000

£'000

Net cash outflow from operating activities - continuing and discontinued operations


(2,786)

-

(2,786)

Net cash outflow from investing activities - continuing and discontinued operations


(4,439)

326

(4,113)

Net cash from/(used in) financing activities


14,236

(326)

13,910

Net increase in cash and cash equivalents


7,011

-

7,011

 

 

 

 


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